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Virginia mall owner in default on $750 million loan

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This year likely can't end fast enough for the MacArthur Center mall in downtown Norfolk, Va. It lost one of two anchors, Nordstrom, and several other stores. One of its larger stores, Forever 21, is closing. There were two separate, non-fatal shootings in the mall. And the latest? Its owner, Starwood Property Trust, has defaulted on a $750 million loan that includes the mall as collateral.

MacArthur Center mall in downtown Norfolk is one of four Starwood malls that are collateral for the commercial mortgage-backed security loan that Starwood Property Trust sought in 2014 with the expectation it would be paid off in three years. It still owes $680.8 million, according to information from Trepp, which tracks commercial real estate and securitized mortgages.

The mall landlord had gotten two year-long extensions, agreeing to pay $800,000 a month to pay down the debt, but its last payment to the servicer was Oct. 8, according to Trepp's information. A special servicer was put in place last month to figure out what could come next, including negotiating a new payment plan with Starwood and foreclosing.

An affiliate of Starwood Capital Group Global bought the four malls, and three others, in 2014 from Taubman Centers Inc., for $1.4 billion.

The other malls, also used for collateral on the loan, are the Northlake Mall in Charlotte, the Mall at Wellington Green, near Boca Raton, Florida, and the Mall at Partridge Creek, near Detroit.

As for Starwood's loan default, MacArthur spokeswoman Karen Husselbee said Thursday that it's "business as usual" at the mall.

Forever 21, one of MacArthur Center's three largest remaining tenants, is closing as a result of its corporate bankruptcy reorganization, and the Regal movie theater's lease ends Jan. 31. Husselbee said Starwood is close to completing a lease renewal with Regal, "and look forward to their continued tenancy at the property."

Net operating income at the mall, the amount of revenue earned after expenses are deducted, has dropped annually since 2016 from $16.1 million to $14.9 million last year.

Starwood has a unique situation in that the city owns the three-story Nordstrom space and the land on which the mall is built. Starwood pays to lease the land, an amount that appears to have dropped from $935,000 in 2016 to $725,000 in 2018, according to information from Trepp. The city of Norfolk pays it about $2.3 million annually to manage the parking structures on site.

"We are in close contact with Starwood regarding their decision to transition MacArthur Center's loan into a special servicing status," said city spokeswoman Lori Crouch in an emailed reply. "It is our understanding Starwood took a similar step with three other properties in their portfolio and this decision will not change the shoppers' experience at the mall."

Crouch did not have any update on the city's progress to fill the Nordstrom space with a new tenant or use.

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